RGGI Offers Pennsylvania Little or Nothing, Except A New Tax

NIMBYismRoger Caiazza
Independent Researcher and Publisher,
Pragmatic Environmentalist of New York

[Editor Comment: Roger uses his experience to look at Pennsylvania’s proposed RGGI program and concludes it is an exercise in virtue signaling of little value.]

Because I have a long-standing interest in the Regional Greenhouse Gas Initiative (RGGI), I tuned into the Pennsylvania Department of Environmental Protection (DEP) webinar held on August 6, 2020.  The webinar was titled “RGGI 101 How it Works and How it Benefits Pennsylvanians” and outlined “how participating in RGGI will lower greenhouse gas and other air pollution emissions from electric power plants” and also covered benefits of the program, including health and economic benefits.  This post describes my impression of the presentation against the reality of my experience with RGGI.

I have been involved in the RGGI program process since it was first proposed prior to 2008.  I blog about the details of the RGGI program because very few seem to want to provide any criticisms of the program. I have extensive experience with air pollution control theory and implementation having worked every cap and trade program affecting electric generating facilities in New York including the Acid Rain Program, Regional Greenhouse Gas Initiative (RGGI) and several Nitrogen Oxide programs.

Note that my experience is exclusively on the industry side and the difference in perspective between affected sources trying to comply with the rules and economists opining about what they should be doing have important ramifications.  I think this background served me well commenting on this DEP presentation.  The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

RGGI is a market-based program to reduce greenhouse gas emissions from the power sector.  According to a RGGI website: “The RGGI states issue CO2 allowances which are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs. Programs funded with RGGI investments have spanned a wide range of consumers, providing benefits and improvements to private homes, local businesses, multi-family housing, industrial facilities, community buildings, retail customers, and more.”

RGGI started in 2009 and the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont have participated ever since.  New Jersey was included at the start of the program, dropped out and re-joined in 2020.  Virginia recently announced that they would join in 2021.  According to this presentation Pennsylvania is planning to join in 2022.

According to the DEP’s RGGI website,  “Governor Wolf recently signed an Executive Order that directed DEP to begin a rulemaking process that will allow Pennsylvania to participate in the Regional Greenhouse Gas Initiative (RGGI), with the goal of reducing carbon emissions from the electricity sector”.  The presentation described this process and explained how the revenues could potentially be invested.

RGGI 101: How it Works and How it Benefits Pennsylvanians

This post will focus on the webinar presentation available at DEP’s RGGI website at the August 6, 2020 RGGI 101 webinar link.  The presentation claimed climate change impacts are happening now in Pennsylvania, gave an overview of RGGI, described how it works, provided information on the DEP’s modeling efforts, claimed that it will benefit “Pennsylvanians and Communities”, talked about plans to invest RGGI revenues and then concluded with plans for the next steps in the process.

Both New York and Pennsylvania rationalize their CO2 emission reduction programs the same way.  First there is a list of bad things that happened followed by claims of changes in the climate.  Clearly the effects were caused by the changes in the climate.  There is never any attempt to attribute just how much of the effect could have been caused by climate as opposed to plain old weather and never any suggestion that the effect of CO2 emissions on climate relative to natural variability is very uncertain.

After the webinar presented those slides, they added a wrinkle that New York has not included yet.  There was a slide that claimed that according to the 2019 Yale Climate National Survey 72% of Pennsylvanians support regulating CO2 as a pollutant.  Personally, I think that a survey get whatever answer the sponsor wants by tuning the questions.  But if DEP wants to play the survey game what about the Gallup poll, taken July 1-23, among U.S. 1,007 adults, that asked respondents, “What do you think is the most important problem facing this country today?”  A plurality, or 30 percent, chose “coronavirus/diseases” as the most important problem, followed by “the government/poor leadership” (23 percent), race relations/racism (16 percent), “unifying the country” (six percent), and “crime/violence” (five percent).  Notably, “climate change/environment/pollution” came at the very bottom of the list, garnering just one percent support.

Slide 6 describes Pennsylvania participation in RGGI.  It graphically shows how five steps of RGGI participation will lead to helping the state combat climate change.  One of the steps says: “Since 2005, RGGI states have significantly reduced their power sector CO2 pollution” beneath a graphic that indicates that there was a 45% reduction.  This statement is an important part of the reason why I think RGGI has not been an unqualified success despite proponent’s claims that it is.

On July 29, 2020 RGGI released their Investment of RGGI Proceeds in 2018 report that tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. That report contains a similar statement: “As a whole, the RGGI states have reduced power sector CO2 pollution over 50% since 2005, while the region’s gross domestic product has continued to grow”.  Both DEP and RGGI make the observed reduction sound like the reductions are due to RGGI.  RGGI did not start until 2009 so the reductions from 2005 until then could not be due to RGGI.

Table 1 lists the total CO2 emissions for the 12-states that have always been in RGGI, the total including PA, NJ and VA, as well as just the PA emissions totals from 2005 to 2018.  The first year of the RGGI program was 2009, when the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont emitted 108,487,823 tons of CO2.  In 2005 emissions from those nine states equaled 147,032,069 tons.  This report was for 2018 and those states emitted 75,177,614 tons of CO2 so my estimate of the reduction since 2005 is 49%. But, 19% of the reductions had occurred by 2008 before RGGI started so clearly some other factor was at play.

RGGI

I have used the EPA’s Clean Air Markets Division emissions data to determine why emissions decreased as shown in the RGGI 12-State EPA Clean Air Markets Division All Program Annual Emissions Data by Primary Fuel Type table.  It is obvious that emissions reductions from coal and oil generating are the primary reason why the emissions decreased.  Note that both coal and oil emissions have dropped over 78% since the baseline over all 12 states.

Natural gas increased, but not nearly as much. I believe the fuel switch from coal and oil to natural gas occurred because natural gas was the cheaper fuel and had very little to do with RGGI because the CO2 allowance cost adder to the plant’s operating costs was relatively small.  There is no evidence that any affected source in RGGI installed add-on controls to reduce their CO2 emissions.

The only other option at a power plant is to become more efficient and burn less fuel.  However, because fuel costs are the biggest driver for operational costs that means efficiency projects to reduce fuel use means have always been considered by these sources.   Because the cost adder of the RGGI carbon price was relatively small I do not believe that any affected source installed an efficiency project as part of its RGGI compliance strategy.

I believe that fuel switching is the primary cause for the observed emission reductions.  Nonetheless RGGI did cause some reductions but that is limited to reductions due to the investments made with the auction proceeds.  RGGI prepares an annual Investments of Proceeds  report that I used to calculate the annual emission reductions accumulated since the beginning of the program through 2018.  The table Accumulated Annual Regional Greenhouse Gas Initiative Benefits Through 2018 lists the annual avoided CO2 emissions generated by the RGGI investments from four previous reports.

The accumulated total of the annual reductions from RGGI investments is 3,091,992 tons while the difference between total annual 2005 and 2018 emissions is 71,854,455 tons.  The RGGI investments are only directly responsible for 4% of the total observed annual reductions over the 2005 to 2018 timeframe!  I believe that the average of the three years before the program started is a better baseline and using that metric there was a 52,116,796 annual ton reduction (41%) in the nine RGGI states to 2018 and RGGI investments accounted for 6%.

The next slide lists benefits of RGGI participation.  In order to respond to each of these bullet points would take a lot of effort.  One claim is that “CO2 emissions will decrease by more than 10x when compared to future emissions without program participation”.  That is based on modeling results and those results are largely based on assumptions about the price of natural gas relative coal.  This has been used from the beginning to determine the effects of RGGI and if one were to verify the original predictions of emissions reductions against what happened the results would be terrible because natural gas became so much cheaper since 2009.

My instinct is that the cost differential will remain the same which I believe will lead to continued fuel switching that will be the primary cause of reductions not RGGI participation.  The economic benefits are based on another model that I don’t trust.  The improvements to healthcare costs and quality of life all assume that that is a linear, no-threshold relationship with air pollution.  I have looked at the PM2.5 relationship in New York City and am unimpressed with the purported benefits.

There are five slides that explain how RGGI works.  It is basically a more detailed description of material already presented.  There are a couple of items of note.  The DEP proposes a cap of 78 million tons a little over 3 million tons less than the emissions in 2018.  The CO2 limit slide includes a bullet that states: “Analyzing emissions impacts in environmental justice (EJ) areas and developing EJ principles”.  It is currently fashionable among progressive environmentalists to incorporate consideration of EJ communities.

Unfortunately, I think the concern about emissions from power plants directly affecting health in neighboring communities is mis-placed because they usually claim health impacts from ozone and PM2.5 which are secondary pollutants.  That means that formation takes time and by that time that happens the pollution has been transported away from the immediate neighborhood.  That is not to say that they are not nuisance impacts from the neighborhood power plants.  DEP expects $300 million in 2020 from the sale of allowances.  Under existing statutes, they can only use auction revenue for the “elimination of air pollution” and that affects the revenue investment strategy.

The slide titled How RGGI Reduces Air Pollution describes a theory of this market-based approach for pollution control.  When the affected sources purchase allowances to cover their emissions, they factor that cost into the price they sell their electricity.  Theory says that the less pollution a power plant creates the cheaper they can sell the electricity.  Grid operators buy the cheapest electricity first so cleaner energy is cheaper electricity.  I believe that there is a gap between theory and the reality of the RGGI cost to the affected sources.

As noted previously I believe the RGGI CO2 allowance cost adder to the plant’s operating costs has been relatively small and will continue to be small.  That was based on conversations with people who would know at the power company I worked at before retirement and discussions with colleagues.  Until such time that someone calculates those costs and shows that my presumption is wrong then I continue to believe that this theory, while correct, in practice does not affect power plant dispatch and emissions simply because the allowance cost adder is too small relative to differences in fuel costs.

There is a slide discussing the models used that I am not going to discuss.  Just keep in mind that all models reflect the assumptions used by the model developers.  I have yet to see verifications tests that prove that the models in question have accurately made future projections in the past.  Nonetheless there is a later slide that claims nine different health benefits.

The webinar then turned to a discussion of revenue reinvestment scenarios.  They looked at three scenarios for discussion and emphasized that they do not reflect funding commitments. The three scenarios were: balanced approach, ratepayer assistance, and general fund and varied by the relative percentage in each of the five broad categories.  Because they can only use auction revenue for the “elimination of air pollution” they only discussed the balanced approach which will “utilize auction revenue to spur innovation, technology deployment and incentivize private sector investments”.  Investments will basically be one third to the energy efficiency, clean and renewable energy and greenhouse gas abatement categories.  Their modeling shows that it generates jobs and grows the economy, all with only a slight decrease in disposable income.

I believe that the ratepayer assistance reinvestment scenario is the best choice.  During the presentation it was noted that energy efficiency investments can be targeted to those who are having trouble paying their energy costs and other than direct bill assistance this is the only category that has that advantage.  More importantly, the results so far in RGGI reported in the annual Investments of Proceeds suggest that investments in clean and renewable energy and greenhouse gas abatement would not be a good deal for Pennsylvania.  As noted previously the accumulated total of the annual reductions from RGGI investments is 3,091,992 tons.  In the 2018 RGGI All-Time Benefits of RGGI Investments table I list the accumulated total annual RGGI investments as $2,578,305,737.  The RGGI CO2 reduction cost per ton based on those numbers is $898 dollars per ton of CO2 reduced.

One way to determine if the GHG emission reduction costs are an effective tool is to compare the cost per ton reduced against a damage metric.  The social cost of carbon (SCC) is the metric used by Federal agencies for this purpose.  I recently posted an overview summary of the SCC but for the purposes of this post you need to know that the values range widely depending on assumptions.  The most widely used value at this time is from the Obama-era Interagency Working group.  If you use a discount rate of 3% and consider global benefits then the 2020 SCC value is $50.  The RGGI investments exceed that metric by over an order of magnitude so they cannot be considered cost-effective relative to the alleged negative impacts of CO2 emissions.

What’s the Point?

According to DEP’s RGGI website: “Governor Wolf states that climate change is the most critical environmental threat confronting the world, and given that power generation is one of the largest contributors to greenhouse gas emissions, it is time to take concrete, economically sound and immediate steps to reduce emissions”.  If Pennsylvania joins RGGI what effect will it have on climate change?   I could not find an estimate by DEP so I made my own.  I simply adapted the the calculations in Analysis of US and State-By-State Carbon Dioxide Emissions and Potential “Savings” In Future Global Temperature and Global Sea Level Rise  to estimate the potential effect.

This analysis of U.S. and state by state carbon dioxide 2010 emissions relative to global emissions quantifies the relative numbers and the potential “savings” in future global temperature and global sea level rise.   These estimates are based on MAGICC: Model for the Assessment of Greenhouse-gas Induced Climate Change) so they represent projected changes based on the Intergovernmental Panel on Climate Change estimates.  All I did in my calculation was to pro-rate the United States impacts by the ratio of Pennsylvania electric sector emissions in 2019 divided by United States emissions to determine the effects of a complete cessation of all CO2 Pennsylvania electric sector emissions to estimate the best-case for joining RGGI.

As shown in the Pennsylvania RGGI Potential savings in future global warming table I found there would be a reduction, or a “savings,” of approximately 0.0011°C by the year 2050 and 0.0023°C by the year 2100.  To give you an idea of how small this temperature change is  consider changes with elevation and latitude.  Generally, temperature decreases three (3) degrees Fahrenheit for every 1,000-foot increase in elevation above sea level.  The projected temperature difference is the same as going down 9 inches.  The general rule is that temperature changes three (3) degrees Fahrenheit for every 300-mile change in latitude at an elevation of sea level.  The projected temperature change is the same as going south two tenths of a mile.

Pennsylvania’s action should also be considered relative to the rest of the world.  According to the China Electricity Council, about 29.9 gigawatts of new coal power capacity was added in 2019 and a further 46 GW of coal-fired power plants are under construction.  If you assume that the new coal plants are super-critical units with an efficiency of 44% and have a capacity factor of 80%, the reductions provided by this program will be replaced by the added 2019 Chinese capacity in 389 days or 153 days if the 2019 capacity and the units under construction are combined.  Clearly, in the absence of worldwide commitments Pennsylvania joining RGGI will have no tangible benefits relative to global warming.

Conclusion

I have followed the RGGI program for years and summarized my observations late last year.  I believe that RGGI is not the success that its adherents believe. Based on the numbers there are some important caveats to the simplistic comparison of before and after emissions.  At the bottom of the DEP’s RGGI website there is a link stating “Learn more about the Regional Greenhouse Gas Initiative and its results over the last ten years”.  The link is to the Acadia Center report “The Regional Greenhouse Gas Initiative: Ten Years in Review.”

That report and the claims for success made in the presentation both make the same error because they attribute all the reductions in CO2 emissions and air quality improvements to the RGGI program.  Fuel switching independent of RGGI was the most effective driver of emissions reductions since the inception of RGGI.  Emission reductions from direct RGGI investments were only responsible for 5% of the observed reductions.  RGGI investments in emission reductions were not efficient at $897 per ton of CO2 removed.  In my opinion those are not the hallmarks of a successful pollution control program.

As a model for future programs, RGGI proved that a regional entity could implement a cap and auction program.  However, the actual cause of observed reductions should be considered before Pennsylvania joins RGGI.  For all intents and purposes RGGI is simply a tax If Pennsylvania does join RGGI, based on the results to date, I think all the investments should go to energy efficiency and direct bill assistance so that those least able to afford the additional costs imposed by the program can get some benefits.

As to the effects on climate change if Pennsylvania joins RGGI, it is obvious that there will be no discernible impact.  That being the case, this is nothing more than virtue signaling to appeal to a motivated political constituency.

Reposted from Pragmatic Environmentalist of New York with permission from publisher.

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